Task Team on water and sanitation - OECD.org · Task Team on water and sanitation ... Alexis BONNEL Head, Infrastructure Division Agence Française de Développement ... AFD – Page

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AgenceAgence FrançaiseFrançaise de de DéveloppementDéveloppement –– AFD AFD –– www.afd.frwww.afd.fr Page 1

TaskTask Team on water Team on water and and sanitationsanitation

The challenge of The challenge of financingfinancingwater water supplysupply and and sanitationsanitation

ExperienceExperience fromfrom fieldfield operationsoperations

OECD, Paris, March 22, 2007OECD, Paris, March 22, 2007

Alexis BONNELHead, Infrastructure Division

Agence Française de Développement


Water SectorWater SectorFinancing OptionsFinancing Options

Few choices to finance sector investments

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Tariffs (consumers)limited : low cost recovery



Degree of cost recovery

Telecom Gas Power Water0%

50%

100%

150%

200%

Financial autonomy


Tariffs (consumers)limited : low cost recovery

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50%

100%

150%

200%

Financial autonomy


Tariffs (consumers)limited : low cost recoveryTaxes (tax payers)limited : budgetary constraints





50%

100%

150%

200%

Financial autonomy


Tariffs (consumers)limited : low cost recoveryTaxes (tax payers)limited : budgetary constraintsPrivate capital flowslimited : risks, debt capacity

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Private flows in infrastructurePrivate flows in infrastructure





50%

100%

150%

200%

Financial autonomy


Tariffs (consumers)limited : low cost recoveryTaxes (tax payers)limited : budgetary constraintsPrivate capital flowslimited : risks, debt capacity

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50%

100%

150%

200%

Financial autonomy


Tariffs (consumers)limited : low cost recoveryTaxes (tax payers)limited : budgetary constraintsPrivate capital flowslimited : risks, debt capacityBilateral and multilateral aidalso limited ?





50%

100%

150%

200%

Financial autonomy


Tariffs (consumers)limited : low cost recoveryTaxes (tax payers)limited : budgetary constraintsPrivate capital flowslimited : risks, debt capacityBilateral and multilateral aidalso limited ?

Investments only if prospects of returns

Local governments ? Few have strong balance sheetService providers ? Cost recovery : be realistic; Regulatory framework ? weak

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CamdessusCamdessus Report 2003Report 2003

Improve cost recovery from users

Increase management efficiency

Increase ODA


Improving PerformanceImproving PerformanceThe Virtuous CycleThe Virtuous Cycle

… Improved cost recovery and efficiency ...

= + financial autonomy, = + ODA, = + private investment,= + impact, hence

… improved efficiency, ...

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Improving PerformanceImproving PerformanceThe Virtuous CycleThe Virtuous Cycle

Source: PPI Database

Average performance of water utilities Today Reachable objectives*in developing countriesTechnical and commercial losses > 45% < 23 %Employees/1000 connexions > 20 < 6Revenue collection period > 18 months < 3 monthsOperating ratio (general expenditures / revenues) > 1 < 0,7Connexion cost (as % of GDP/capita) 5 to 60% < 20 %Continuity of service < 12h / day 24 h / day* corresponding to average performance of the 25% best performing operators in developing countries

Taylor ODA - funded programs according to performance


Advocating for more ODA funding in the sectorODA estimated to cover only 15% of funding needs, even after doubling

“Classic” ODA sovereign financing needed to stop erosion of existing infrastructure and cover upfront structural capital investmentsAccess to water services requires (source OECD):

USD 80 / inhabitant = average in developing countriesUSD 260 / inhabitant in Africa : 80% is rehabilitation (lack of self funding capacity, poor management and inadequate consumer financing through payment of services)

More grant financing for sanitation, so far poorly addressed by aid

Increase in “Increase in “good oldgood old” ODA” ODAfinancing tools requiredfinancing tools required

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Main source of funding = consumer payment for services



• Access to water for all (MDGs)

• Sustainability

MultipleStakeholders

public, private, civil societyforeign, central and local

MultipleFinancingSources

ODA

Consumer financing

FDI

Migrant Transfers

NGOs

Local finance

Gvt budget

Goals Stakeholders Tools

ODA = catalyst of ODA = catalyst of water sector financing water sector financing

leverageleverage

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GurriaGurria Task Force Report 2006Task Force Report 2006

Access to finance for local stakeholders

Shift of focus on financial issues : demand side

Develop innovative financing mechanisms : grass-root level, local currency finance


More financial engineering

Equity financing

Private sector loans

Partial risk guarantees

Guarantees on loans, including in local currency

Non and sub-sovereign loans (concessional or market conditions)

Sovereign loans (from very concessional to market conditions)

Grants (projects, study funds)

PrivatePrivateSectorSector

Public Public SectorSector

Matching financial solutions Matching financial solutions to stakeholder problemsto stakeholder problemsvs. finding problems that match your solutions…vs. finding problems that match your solutions…

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ODA can and has to take more risks in support of innovative local financing solutions

Non and sub sovereign lendingFinancial vehicules to support local access to LT capital in local currency (eg. MFI support, local currency bond guarantees, …)

Guarantee and risk mitigation toolsSoft loans to private sector for projects with strong economic/environmental/social impact but deferred financial viability Output based aid mechanisms

Flexible loans allowing indexation of debt service or concessionality on given indicators (e.g. cash flow)

ODA has to take more risksODA has to take more risks


The tariff issue : raise awareness on payment for water services“Free” water services are not sustainable and expensive, particularly for the poorNo local financing solution without minimal financial viabilityA Communication strategy needed

The governance issue : building economic confidenceRegulated contractual arrangements improve transparency, governance and performance (eg. case of PPPs)

Improved governance and performance attracts financing, local and foreignImportance of transparent Monitoring and Evaluation mechanisms to :

set objectivesmeasure progressbenchmark aid effectiveness and disseminate best practice

What gets measured gets done

For that to happen : For that to happen : (1) need to assess & mitigate the risks…(1) need to assess & mitigate the risks…

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Recognize ODA value of guarantee schemes(partial risk guarantees, guarantees in local currency, etc.)

For that to happen : For that to happen : (2) make sure new tools account as ODA(2) make sure new tools account as ODA


Thank you for your attention...

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Merci de votre attention...Merci de votre attention...

Documents

Task Team on water and sanitation - OECD.org · Task Team on water and sanitation ... Alexis BONNEL Head, Infrastructure Division Agence Française de Développement ... AFD – Page